Donald Trump’s blizzard of tariffs has been greeted with dismay by most world leaders, but in Britain politicians can at least see a silver lining.
The UK has claimed a major benefit from Brexit after the US president imposed a 10pc levy on goods imported from the UK – half the 20pc rate hitting exporters who are still in the European Union.
Andrew Griffith, shadow trade secretary, called the low rate “a Brexit dividend that will have protected thousands of British jobs and businesses”.
Number 10 said Britain’s approach to courting Trump had been “vindicated” by the lower rate.
Lord Frost, a Conservative peer and former Brexit negotiator, said: “It also vindicates our decision to get out of the EU and its customs union”, praising the prime minister “for being ready to take advantage of our status as an independent country and the Brexit freedoms that go with it”.
Economists still expect Britain’s economy to suffer from Trump’s sweeping trade war in the short-term, with Sir Keir Starmer warning of an “economic impact”.
However, seizing the opportunities offered by the UK’s lower tariffs could turn into a long-term benefit for the country.
Kevin Craven, the head of ADS, the trade group for the UK aerospace, defence and space sectors, says: “We are better off than Europe today and our Government and officials are reasonably positive about improving the better position that we have, and our members are saying the impacts of what we know now are not catastrophic.
“The overall impact on global trade is going to be really difficult and really choppy. But in the medium to longer term it’s quite possible that Britain being on the edge of Europe – who may well be considering retaliatory measures that we won’t be considering – might provide opportunities in the future.”
The 10pc tariff is not, of itself, good for Britain: it means companies selling products into the US now face a new tax that makes their goods more expensive on the other side of the Atlantic. For carmakers, the situation is even worse as Trump imposed a 25pc tax on all imported vehicles.
The US is the UK’s single biggest export market, buying almost £60bn of British goods in the past 12 months. Cars made up the largest chunk, with £8.3bn of sales to Americans. Until now, the market has been growing. US purchases of British-made cars grew by 17pc last year.
Economists now expect a sharp slowdown both in trade and growth, potentially pushing the UK into recession. The overall blow Trump has dealt to the world economy will also be painful for Britain.
But trade is a relative game. Businesses could over time even turn adversity into opportunity as countries like the UK gain a competitive edge over rivals.
“There will always be winners and losers and we have some very smart people and businesses who will be looking for ways to turn it to their advantage,” says Craven. “There will be a shaking out of the competitive edge in each territory.”
Two elements could work to Britain’s advantage.
One is the fact that a British manufacturer is at less of a disadvantage than a competitor within the EU when selling into the US market. The difference in tax rates gives UK-made goods a 10 percentage-point edge over those sent from the other side of the Channel.
This could prompt US companies to buy more from the UK and for multinational companies to shift more work and investment out of the EU and into the UK.
“One of the thoughts we’re having is that Northern Ireland might become more interesting,” says Craven. “It is part of GB and while aerospace components are not specifically called out in the Windsor Protocols, it is a slightly freer trade environment with Europe than is mainland UK, so who knows where that might go.”
A British renaissance
European factories will not simply be able to send their products via Britain and then on to America, a tactic that would swiftly be sniffed out and shut down by US customs officials.
The “rules of origin” mean that, for customs purposes, a part made in Germany that is simply shipped via the UK will still be charged an EU tariff at the American border.
To get around this, raw materials or parts must be sufficiently transformed in some way – by modifying them or using them to assemble a more complex product, for example.
This could form the basis of a British manufacturing renaissance, assuming there is no further turmoil in American trade policy and the UK manages to capitalise on its newfound competitive edge.
Tomasz Wieladek, chief European economist at investment manager T. Rowe Price, says: “Plants producing anything in the UK will be more competitive than in the EU, which will support some domestic investment. Trade diversion to the US via the UK is likely to be now significant.”
Doing this for any goods in sectors where Britain’s general tariffs are lower than the EU’s could save manufacturers significant sums. For the moment, blanket 25pc tariffs for cars and steel would prevent those industries benefiting, however.
Lower prices?
The second element is that Trump’s tariffs could drive down prices in Britain.
His trade policy is designed to repel imports. The new country-by-country taxes and the universal tariffs on steel, aluminium and cars mean anyone in the world who built factories outside of the US intended to sell to American customers is suddenly at a loss.
As a result, companies are likely to seek customers elsewhere, potentially selling their products at knockdown rates to prevent stock piling up. This could mean cheaper goods flooding into Britain.
That might not be welcomed by local factory bosses but it would be great news for consumers, who are likely to welcome lower prices after the cost of living crisis.
David Miles, at the Office for Budget Responsibility, told MPs this week: “Some of the exports from China, for example, that would have gone to the US, they’ll be looking for a home for them in the rest of the world. And stuff would be available in the UK a bit cheaper than [it] otherwise would have been.”
Similarly Megan Greene, a member of the Bank of England’s Monetary Policy Committee, said tariffs might lead to lower inflation.
“Trade diversion … means that other countries that used to have a big market in the US might need to find another market, and they might do so by discounting things,” she said. “That could be disinflationary and could happen fairly quickly.”
Such a development could help the Bank of England cut interest rates – traders in financial markets think three rate cuts by the MPC are now more likely than two over the next 12 months.
Britain’s ability to set its own trade policy also holds out the hope of more nimble negotiations with the White House. It means Sir Keir can negotiate without being hamstrung by grumpy French farmers or fussy German manufacturers.
Andy Palmer, a former Nissan executive who was also boss of Aston Martin, says that a deal with Trump could potentially unlock advantages for British industries that are currently suffering, like automotive.
“In some key areas, you could actually end up with the UK being at an advantage compared to the rest of Europe,” he says. “It could be that the UK becomes a landing point for European exports to the US.
“The question is whether the Starmer Government is mature enough and has enough understanding of business to exploit that potential benefit.”